Why RIM Should Call Amazon, Stock To Reach $20

Sell-side analysts have a tough job. If you want to generate some hate mail, say something slightly bearish about a popular stock such as Research In Motion - it matters not if it’s true. Last week, RIM’s stock plummeted 22% on the heels of the company’s third quarter earnings results. But was it deserved?

On the whole, the earnings report was actually pretty impressive – relative to expectations. However, CEO Thorsten Heins pointed to a different approach to the company’s services business, which in many respects seems justified. Heins said if some customers use a more basic selection of the network service, they may not be required to pay.

On the other hand, it was what the company didn’t say that caused the panic among sell-side analysts. Aside from what is now being perceived as a “tiered” model, there is concern that this may erode RIM’s major revenue source. In fairness, we have no idea what the net effect will be - at least not until the company has had a chance to execute this new direction.

Unfortunately, in the meantime this news has taken away from the potential of BB10 before its debut. Following the news, sell-side analyst downgraded the stock, including Avi Silver of CLSA Asia-Pacific Markets, who cut his rating to sell and maintained a price target of $8.75. Was it an overreaction? In many respects, yes.

RIM's stock is fairly valued at this point and I don’t see much downside past $10. Bernstein analyst Pierre Ferragu agrees and has a Market Perform rating on the stock. He also thinks that the shares have the potential to breach $20 sometime in the second quarter of 2013.

However, his optimism is not without caution. He also said: “we see more and more evidence of a market share losses in corporate, with a negative trend both on the number of users and replacement cycles.”

Any way you look at it, RIM has an uphill battle for market share against leaders Apple, Google and Microsoft. Making matters worse is that Amazonnow plans to enter an already saturated market. Will this add increase pressure on RIM? Perhaps. But it can also become a blessing since Amazon will also have to choose which phone operating system it uses.

If BB10 is all that it is billed to be, Amazon might go in that direction as a way to attack both Apple and Google. The good news is, it is no longer a foregone conclusion that RIM can’t compete. The company now has a chance. But it may need to reach out to Amazon, which might be RIM’s ticket to an instant ecosystem. Stay tuned!